Hiring Recent University Graduates into Internal Audit Positions: Insights from Practicing Internal Auditors Free

For over ten years, auditing practitioners and academics have provided commentary and analysis on the increasing growth in and importance of the internal audit profession (e.g., POB 2000; Gramling et al. 2004; Sumners and Soileau 2008), the need for academic curricula to better prepare students for the internal audit workplace (Dickins and Reisch 2009), and students' growing interest in the internal audit as a career path (Sharifi and Khan 2010). Concurrently, the Institute of Internal Auditors (IIA) has further developed its Internal Auditing Education Partnership (IAEP) program.¹ This program involves collaboration between the IIA and various universities with a focus on helping to ensure that internal audit students entering the profession have the skills necessary for success. As part of the IAEP, the IIA works with universities to encourage them to provide appropriate internal audit educational offerings.

There is a growing interest within business schools in providing internal auditing in their accounting curricula (e.g., Sharifi and Khan 2010). As business schools consider the development and refinement of their internal audit-related courses and programs, it is useful to have current data on what employers believe are important factors when hiring recent university graduates into entry-level internal audit positions.

Our analysis is based on 273 responses to a mailed survey. Approximately 58 percent of the practicing internal auditor respondents indicated that they hire recent university graduates into their internal audit functions.² These respondents provided their assessments of the factors that they consider important in those hiring decisions. The findings generally support the importance of criteria recommended in the IIA's suggested internal auditing program. However, the findings also indicate the importance of additional factors, including demonstrated communication skills and demonstrated leadership skills, suggesting that universities should provide opportunities for students to develop these skills. Forty-two percent of the respondents do not hire recent university graduates, with the primary reason being that they need experienced hires because they do not have the resources to train inexperienced hires. In the next section, we provide additional background and review relevant literature. We then present details on our data collection and analyses, including implications of our results. We conclude with considerations for the internal audit profession, internal audit educators, and internal audit researchers.

A number of studies focus on skills internal auditors already in the profession need for success. For example, the IIA Research Foundation (i.e., Bailey 2010) published a report providing practitioners' insights on competencies that internal auditors already in the profession should possess to perform successfully as practitioners. Bailey (2010) identified communication skills as the most important attribute. Important knowledge areas included auditing, internal audit standards, ethics, and fraud awareness (Bailey 2010). Similarly, Burnaby and Haas (2011) report that chief audit executives considered communication, analytical skills, writing skills, conflict resolution, and problem identification as important for staff internal auditors to successfully perform their work. While insights from these recent studies are helpful, they do not directly address the skills considered by those hiring new internal auditors directly from a university program.

The IIA's IAEP program provides direction on courses, experiences, and credentials that students who want to enter the internal audit profession should have as a part of an internal audit education experience. Table 1 identifies these factors. Presumably, these requirements are based, in part, on what employers perceive to be important when hiring entry-level internal auditors. The IIA's global model internal auditing curriculum indicates that the following core courses should be part of a curriculum that prepares students for the internal auditing profession: Principles of Internal Auditing, Ethics and Organizational Governance, Fraud and Forensics, Information Technology (IT) Auditing, and Business Communication Skills for Internal Auditors.³ Furthermore, the IAEP program stresses the importance of having one or more faculty members certified as a Certified Internal Auditor (CIA) and highlights the need to provide opportunities for students to be involved in internal, audit-related internship (or similar) experiences. The IIA guidance also stresses the importance of preparing students to sit for the CIA exam and having a recognized educational focus in internal auditing.

There is little academic research to complement the IIA's recommendations for developing an internal audit program that is focused on preparing students to enter the internal audit profession. We found very few studies that examined factors considered by those hiring entry-level internal auditors. Seol and Sarkis (2005) developed an application of a multi-attribute model and methodology for the selection of internal auditors. While they illustrated the methodology, they did not provide insights specific to skills considered important when hiring new internal auditors. As a further development, Seol et al. (2011) used a 1999 framework presented by the IIA to develop a reduced set of skills required by new entrants to the internal audit profession. The IIA's framework identified 56 skills, while Seol et al. (2011) reduced this to 11 skills. They highlight the importance of communication skills for new internal auditors.

Extant literature on hiring practices related to internal auditors is also very limited. Most relevant is a study conducted by Alkafaji et al. (2010), who report that direct recruitment from universities is the approach least used by organizations for staffing their internal audit functions. They suggest that this finding may be attributable to organizations needing experienced auditors, possibly because many organizations are not able to provide necessary training (also see Dickins and Reisch 2009). As further evidence of hiring practices, Whitehouse (2011) reports that more than half of internal audit organizations obtain their staff from transfers within the organization, suggesting that internal audit is tapping internal talent, rather than bringing in new talent from outside the organization.

We add to these growing literatures by obtaining insights from practicing internal auditors in the U.S. on two important hiring decisions: whether they hire recent university graduates and, if so, the factors that they consider important when hiring recent university graduates as entry-level internal auditors.

To obtain insights into factors considered important when hiring recent university graduates into the internal audit function, we developed a survey listing potentially important factors. The initial set of factors was based primarily on the IIA's IAEP guidelines. These factors generally can be categorized as specific coursework/topics, relevant experiential activities, and credentials and certifications. We supplemented this initial list in two ways. First, we added a factor for a course in negotiations. This addition was based on various publications noting the importance of negotiation skills for internal auditors (Moeller 2009; Bailey 2010) and the fact that such a course is available on some campuses through either the business school (e.g., Kennesaw State University) or other academic units (e.g., Oregon State University). Indeed, internal auditors need to know how to negotiate. Internal auditors negotiate with auditees to improve cooperation, and they need negotiation skills to improve acceptance of audit findings and recommendations. Second, we added other credential and certification factors that often are highlighted in recruitment ads as necessary or desired characteristics, including degree type and GPA.

We asked a focus group of Chief Audit Executives to review our initial list of factors. This focus group recommended the addition of one factor that fits within the category of specific coursework/topics. That factor was that students should understand the difference between internal and external auditing. Furthermore, the focus group did not recommend that any factors be deleted. The final survey comprised 17 factors that would likely be considered when hiring a recent university graduate into the internal audit function.⁴ For each of the 17 factors, respondents indicated their level of agreement as to whether the factor was important in hiring decisions at their organizations (the five-point scale ranged from −2 = strongly disagree to +2 = strongly agree). Given our methodology for including factors in the survey, we expected all of the factors to be assessed by our respondents as important (i.e., mean greater than 0), but we had no ex ante expectations regarding the order of importance of the 17 factors. In addition to asking for responses to the 17 statements, we also asked respondents to provide any additional comments that they considered relevant.⁵

We mailed the survey to 1,499 Chief Audit Executives at NYSE-listed U.S. companies.⁶ Twenty-three surveys were returned due to an insufficient address, with no forwarding information provided. Of the remaining 1,476 surveys, we received 273 completed surveys (18 percent response rate).

Panel A of Table 2 indicates that our respondents are primarily Chief Audit Executives or Directors (89 percent). Further, the mean size (standard deviation; median) of the internal audit function is 14 (30.28; 8) professional internal audit employees, with the size ranging from one internal audit employee to 450 employees.⁷ Panel B of Table 2 indicates that the respondents represent a wide range of industries.

One hundred fifty-nine (159) respondents (58 percent) indicated that they have hired recent university graduates into their internal audit function within the last year or that they would consider hiring them.⁸ In Table 3, we report the results relating to the importance of factors in internal audit hiring decisions for these 159 respondents. Table 3 organizes the factors into the three categories we discussed earlier: Specific Coursework and Topics (Panel A), Student Experiential Activities (Panel B), and Student Credentials and Certifications (Panel C); within each category, we present the factors ordered from highest mean response to lowest mean response.⁹

Panel A of Table 3 focuses on factors that can be most influenced by curriculum and program choices made by those developing criteria for internal audit programs (e.g., the IIA) or those developing or changing specific university internal audit programs (i.e., educators). Panel B includes factors that could be influenced by curriculum and program choices or could be influenced by students' individual actions (e.g., having an internship requirement in an internal audit program or a student seeking such an experience, if not required). The factors in Panel C are influenced primarily by the students' own performance or choices regarding education and certification. A review of Table 3 indicates that 15 of the 17 factors were perceived as important (i.e., mean response significantly greater than the scale midpoint of 0) at the p < 0.001 level, one factor was perceived as important at the p < 0.01 level, and one factor was not significantly different from the scale midpoint of 0. Given the restricted range of responses (i.e., a five-point scale) and a significance test that focuses on mean responses greater than the scale midpoint, we also provide count data in Table 3. In discussing these results, we highlight significant factors (i.e., mean response significantly greater than the scale midpoint of 0), where less than 50 percent of the respondents indicated some level of agreement.

Panel A of Table 3 includes the seven factors related to coursework and topics. All of the seven factors were considered important (i.e., mean responses greater than 0). The six factors with a mean response greater than the scale midpoint of 0 at the p < 0.001 level include: information technology course (mean = 1.26, SD = 0.78), ethics and/or organizational governance course (mean = 1.19, SD = 0.90), internal audit course (mean = 1.13, SD = 1.00), understanding the difference between internal and external auditing (mean = 1.13, SD = 0.94), a course in fraud and/or forensics (mean = 0.98, SD = 0.84), and a course in business communications for internal auditors (mean = 0.78, SD = 1.02). All five of the specific courses are recommended in the IIA's IAEP guidelines. The IIA's guidelines are silent, however, on a negotiations course. The mean response to the negotiations course was 0.17 (SD = 0.85, mean response is significantly higher than the scale midpoint of 0 at p < 0.01). Regarding coursework and topics, these results indicate that the IIA-suggested courses are viewed as important by those audit professionals hiring entry-level internal auditors directly from a university. In addition to the IIA suggested courses, students might benefit from taking a negotiations course. However, as highlighted in Panel A of Table 3, only 49 of the respondents (31 percent) agreed that a negotiations course was important. Furthermore, it seems important to ensure that students understand the difference between internal and external auditing.

Panel B of Table 3 includes five factors related to student experiences, with respondents indicating that all five factors were considered important (i.e., mean response greater than the scale midpoint of 0 at the p < 0.001 level) when hiring recent college graduates into an internal audit position. The five experiential factors deemed important include: demonstrated communication skills (mean = 1.62, SD = 0.57), demonstrated leadership skills (mean = 1.38, SD = 0.65), general business experience (mean = 0.77, SD = 0.88), internal audit experience (mean = 0.73, SD = 0.90), and interaction with faculty having internal audit certification or experience (mean = 0.41, SD = 0.94). The IIA's recommendations highlight the importance of internal audit experience through internship (or similar) experiences and stress the need to have faculty with a CIA certification. The results in Panel B of Table 3 also suggest value in students having opportunities to demonstrate communication and leadership skills—both of which can be gained during work experiences in either internal auditing or more general business positions. However, the importance of student interaction with faculty having internal audit certification or experience appears to be somewhat limited. Only 65 (41 percent) respondents agreed that this interaction was important in the hiring decision.

Panel C of Table 3 includes five factors related to student credentials and certifications, with respondents indicating that four of the five factors were considered important (i.e., mean response greater than the scale midpoint of 0 at the p < 0.001 level). The important factors included having an accounting degree (mean = 1.19, SD = 0.93), having a high GPA (mean = 1.05, SD = 0.89), planning to take the CIA exam (mean = 0.70, SD = 1.01), and completing a formalized internal audit program, such as a concentration or certificate in internal auditing (mean = 0.42, SD = 0.99). The only factor that was not different from the scale midpoint was the student having a graduate degree (other than accounting) in business (mean = −0.08, SD = 1.06). In fact, for this factor, only 49 (31 percent) of the respondents agreed that a graduate degree was important in the hiring decision.

These results align with the IIA's guidelines that highlight the importance of the student taking the CIA exam. However, respondents did not have a high level of agreement that completing a formalized internal audit program (i.e., track, concentration, certificate) was important in the hiring decision, with only 72 (46 percent) respondents indicating agreement with this factor. Furthermore, while the IIA guidelines indicate that any discipline—not just accounting—would be acceptable for someone completing a specialized focus on internal auditing, our respondents seem to prefer an accounting degree. Our results also emphasize the importance of a student having a high GPA.

Given that we used a short one-page survey to maximize our response rate, our survey did not address a number of potentially interesting issues. To supplement our original survey, we sent a short follow-up survey to the 40 respondents who both indicated that they hire recent university graduates into the internal audit function and provided a usable email address.¹⁰ Table 4 lists the questions that were included in the survey. We did not provide the respondents with any type of response scale; rather, we asked respondents to provide written comments to each of the questions. We received 13 responses (32.5 percent).

We recognize that employers might look for CPA-eligible candidates, rather than only those pursuing a CIA certification. Therefore, we asked whether potential employers take into consideration whether a student has satisfied the college credit requirements to become a CPA. The results were mixed; six of the 13 respondents said that this was a rather important factor, five indicated that it was moderately important (i.e., other factors would dominate the decision), and two respondents indicated that the factor was not important.

One issue not addressed in our original survey was whether the hiring organization had a rotation program. Such a program could be designed to better prepare inexperienced new hires for an internal audit position, especially if it were designed so that the employees can gain exposure to various aspects of the business prior to moving into an internal audit role. However, only one respondent indicated that the organization had a formal rotation program; this program was designed so that an employee first gets internal audit experience and then moves into various finance and accounting roles, which seems to be descriptive of most internal audit rotation programs (Christ et al. 2011).

A limitation of our original survey is that we did not obtain information on the type of work performed by the internal audit function (i.e., whether internal auditors focus on assurance or consulting services). It may be that the focus of an internal audit function influences hiring decisions. In our follow-up survey, we asked respondents how their focus influences hiring decisions. All but one of the 13 respondents indicated that their internal auditors were focused more on assurance than consulting. The general consensus was that the focus of the internal audit function was not an important factor in hiring decisions, with some respondents indicating that the factors considered important in the hiring decision would be important for both assurance and consulting work.

Results from our original survey noted that respondents generally preferred an accounting degree. Those results did not provide any evidence on whether non-business majors are hired directly into the internal audit function. Our respondents to the follow-up survey indicated overwhelmingly that, when hiring directly out of college, they hire only business majors and that the preferred areas of focus include accounting, finance, and information systems.

The final point in our follow-up survey recognizes that employers may consider it to be important whether the university that the student comes from is a university that promotes internal auditing through various mechanisms, including course offerings, internships, and career fairs. This need for explicit support of the internal audit profession is highlighted in the IIA IAEP program framework that requires faculty to be members of the IIA and participate in relevant consulting or research. Only four of the 13 respondents indicated that they would prefer students who come from a university that explicitly supports the internal audit profession.

Our results provide some important implications for a number of stakeholders involved in internal audit education including: (1) professors and administrators considering initiating or further developing internal auditing education offerings, (2) the IIA as it determines how to further develop interest in and promote its IAEP program, and (3) university students considering a career path in internal auditing.¹¹ Results in Table 3 highlight that internal auditing program factors suggested by the IIA are generally valued by internal auditors hiring recent university graduates, implying that the five core classes recommended by the IIA (see Table 1) should be included in an internal audit curriculum. While our survey did not address specific content that should be included in such courses, for educators who want to implement such courses, the IIA does provide content recommendations for each of these courses (see the IAEP framework at http://www.theiia.org/guidance/academic-relations/internal-auditing-education-partnership-program/).

Furthermore, educators developing or modifying internal audit programs may want to consider factors not explicitly required by the IIA's framework. For example, while it is important that students understand the differences between internal and external auditing, students who have focused on one of these professions, to the exclusion of the other, may not understand the differing roles and responsibilities. The respondents also valued demonstrated communication and leadership skills in either work settings or extracurricular activities. Educators in internal audit programs should explore how best to provide students with these opportunities.

Panel C of Table 3 has important implications for students. Students with a career goal of being hired as an entry-level internal auditor directly from a university program will increase the likelihood of being able to enter the profession by obtaining a degree in accounting, planning to sit for the CIA exam, and demonstrating high educational achievement through a high GPA. Faculty members can highlight the importance of these factors to students interested in an internal audit entry-level position.

The results in Table 3 should provide points of consideration for the IIA with respect to its IAEP program. Should an internal audit program that is designed to prepare students to enter the profession have additional elements (i.e., students understand the differences between internal and external auditing; students have demonstrated communication and leadership skills in either work settings or extracurricular activities)? Furthermore, should the IIA encourage formalized internal audit programs (i.e., track, concentration, certificate) or just provide guidance on suggested coursework, topics, and experiences to universities that want to prepare students for entry-level internal audit positions?

One hundred fourteen respondents (42 percent) indicated that they had not hired a recent university graduate in their internal audit function in the previous 12 months and had no plans to do so in the future. While this result may be discouraging to business schools that have, or plan to add, internal audit courses into the curriculum, this result needs to be interpreted in light of the fact that the study was conducted at a time of economic concerns, and thus may not reflect hiring practices that are typical in more prosperous times. To illustrate this point, we note that one respondent commented that, because of the state of the economy, experienced individuals could be hired at reasonable rates, therefore reducing the attractiveness of recent university graduates. Furthermore, our study does not consider that internal audit professional service firms and large public accounting firms potentially would hire recent university graduates into entry-level internal audit positions—our data do not address the extent to which such firms hire recent university graduates.

We asked the 114 respondents who do not hire recent graduates into their internal audit functions to briefly describe the reason for this practice, and 113 of the respondents (99 percent) provided comments. By far, the most common reason provided for not hiring recent university graduates was that the organization hired only experienced auditors, with prior experience in either internal or external auditing (85 respondents, representing 75 percent of those not hiring). Comments voluntarily provided by the respondents further illustrate this point. One respondent indicated that entry-level internal auditors would not be appropriate as the staff auditors “are asked to lead audit procedures and generate results and findings.” A general perspective is reflected in the following respondent comment: “Our ‘small but experienced' model does not allow for entry-level auditors.” Many comments reflected the need to have experienced auditors who were “seasoned in the audit process” and could be “immediately productive.”

Thirty-five respondents (31 percent of those not hiring) indicated that, while it would be possible to hire recent university graduates, their organizations did not have the resources to provide necessary or appropriate training and supervision for recent university graduates. Many respondents commented that they prefer to hire experienced auditors from large CPA firms that provide formal audit training.

We posit that an important difference between respondents who do and do not hire recent university graduates is the size of the respondent's internal audit function. Our data indicate that the mean (SD, median) size of the internal audit department for non-hiring respondents is 8.9 (8.7, 6), while the mean size (SD, median) of the internal audit department for hiring respondents is 17.52 (38.6; 9).¹² This difference in size is likely associated with differences in the resources available to provide appropriate training and supervision of newly hired internal auditors (Dickins and Reisch 2009).

Our survey of practicing internal auditors at NYSE-listed organizations provides some helpful insights for the internal audit profession and for business schools that offer, or plan to offer, internal audit courses and programs. We find that over half of the respondents hire entry-level internal auditors directly from university programs. This finding suggests that entry-level hiring is more prevalent than indicated in prior research. If entry-level hiring is expected to continue or grow, universities should work with practitioners and the profession (e.g., the IIA) to develop students with characteristics that will allow them to be successful when participating in the hiring process. Our survey results, in conjunction with the IIA's IAEP guidelines, provide a starting point for these discussions.

The results of our study are subject to several limitations. First, our survey of NYSE-listed organizations resulted in obtaining responses from organizations that may differ in important ways from other organizations with internal audit departments. For example, the NYSE includes some of the largest public companies; small start-companies would not list on the NYSE due to requirements related to market capitalization and revenue. Smaller and potentially riskier companies would typically be found on other exchanges (e.g., NASDAQ, AMEX) or may not be publicly traded. Hiring decisions at NYSE organizations may differ from hiring decisions at these other types of organizations. Consequently, further research is needed to determine the extent to which our findings are generalizable to non-NYSE organizations (i.e., other public companies, non-public companies, governmental agencies, and non-profit organizations).

We speculate that hiring of recent university graduates may be greater at NYSE companies than at other companies because the NYSE companies likely have more resources to hire and train less experienced professionals. However, we readily acknowledge that this is an empirical question and encourage additional research on the issue. Relatedly, we encourage caution in generalizing the important factors identified in this study to companies not listed on the NYSE.

An additional limitation relates to the factors included in the survey. In an effort to develop a brief survey, we likely omitted factors that could be considered important. For example, other studies examining desired student competencies have found that additional skills, such as interpersonal skills and problem solving/critical thinking skills, are important (e.g., Palmer et al. 2004). It is possible that omitted factors may have affected the results of the paper somewhat.¹³ Future research could provide insights on this issue.

Those respondents who did not hire recent university graduates overwhelmingly indicated that this hiring decision was attributable to their need for experienced hires because they did not have sufficient training resources. One issue that was not explicitly addressed by our respondents is whether the formal training or the varied on-the-job training that external auditors typically receive from the CPA firms is more important. Future research could address this issue.

Our follow-up survey provides additional preliminary insights. However, because of the low response rate to this survey, we encourage future research that can provide additional insights. For example, respondents to our follow-up survey were split on whether it was important, in the hiring decision, for recent graduates to be eligible to sit for the CPA exam. These respondents also indicated that the focus of the internal audit function (i.e., assurance or consulting) would not impact the factors considered important in the hiring decision. Further research explicitly examining the importance of these and other factors in hiring decisions would add to this literature. Finally, as an extension of this literature, we encourage researchers to examine the extent to which the factors identified in this study as being important in the hiring decision translate into actual career success.